The Advantages of a Business Line of Credit
A business line of credit provides additional funds when you need them. Much like a credit card, the balance is revolving. As you repay, the available funds replenish. It also comes with a variety of helpful benefits.
Rather than receiving a lump sum of money, a business line of credit allows you to only tap into your funds when you need them. You only make payments (plus interest) on the money you draw. The ability to access money when you need it enables you to take control and drive your business growth.
You can use your line of credit for just about anything, allowing you to put the funds toward the things that your business needs most. You also don’t have to worry about minimums. For traditional loans, lenders set borrowing limits, including the lowest amount you can borrow. Lines of credit can come in handy for smaller purchases.
Traditional loans can take a while to get. Between the application and underwriting processes, you may be waiting weeks (if not months) before you see your funds. Withdrawing funds from your line of credit is much faster. In most cases, it only takes a couple of days. In some instances, you can have almost instant access.
Fast access to your funds allows you to get what you need when you need it. It also gives you the ability to take advantage of unique opportunities before they disappear.
Most lines of credit follow the prime lending rates and are much lower than credit cards. The better your credit, the lower the rates you’ll be charged. Making payments on-time helps to keep those rates low. It can also help to increase your maximum available balance. On the other hand, late and missed payments can lead to higher rates, so be sure to pay your statements by the due date.
Improve Your Credit Score
Less than ideal credit is one of the most common reasons why business owners can’t get a small business loan. A line of credit is a great way to get access to cash when you need it and work to build your credit history. The line itself and making on-time payments boost your score, making you appear less risky to potential lenders. The better your credit history, the better your chances for loan approval.
While a line of credit does provide significant benefits, you need to remember that you should only use it when necessary. Overuse can lead to bigger financial troubles. When used correctly, your line of credit can help you achieve your business goals.